BNP Paribas, which has taken an overweight stance on North Asia economies for two months, has bolstered this bias by moving to a more bullish position on South Korea and has cut its exposure to Indonesia and India.

The French banking and wealth management group, in a regular update on its asset allocation positions, said its overweight jurisdictions in Asia are Hong Kong, South Korea, Taiwan and Philippines. It is neutral on China, India, Indonesia and Thailand; it is underweight Singapore and Malaysia.

“While fundamentals have improved somewhat (lower trade deficits, more decisive central bank action), we think the risks to ASEAN markets and India are not yet behind us. On the other hand, an export revival led by developed market demand is a

strong theme in Asia – we expect Korea, Taiwan and China to be significant beneficiaries. Increased overseas demand has the potential to spill over into domestic demand,” BNP Paribas said.

“Apart from being strongly geared to developed market recovery, Korea offers a stable currency and is under-valued and under-owned by institutional investors, in our view. The bulk of our Korea exposure is in tech (Samsung Electronics and Hynix), consumer discretionaries and staples (Hyundai Motors, Orion Corporation, GS Retail),” it continued.

“We introduce exposure to industrials through Hyundai Heavy despite its shares recent 30 per cent move up,” it said.

The bank said that China is the “critical call in Asia”. It notes that the Chinese government has indicated willingness to support growth if it falters below 7.5 per cent; infrastructure projects could sustain growth for a few more quarters.

“The market seems to be expecting announcements, if not details, about government reform, fiscal reform and land reforms and urbanisation from the upcoming third Plenary Session of the Central Committee of the Chinese Communist Party,” it said, adding that it is making no change to its China portfolio.

“Portfolio construction in Asia has become a game of tough choices after the recent sharp move up in equities - particularly since the announcement of postponement of tapering by the Fed in September. Overvaluation of fundamentally-attractive stocks and undervaluation of fundamentally-risky deep cyclicals have always been phenomena characterising Asia. Of late this valuation polarisation seems to have gone to extremes. The divergence is visible across markets as well, though not as much as across sectors. With the sharp outperformance of North Asia over the past three months, country selection has also become difficult,” the bank said.

Nothing the sharp divergences in stock market performance across the region, BNP Paribas sets out figures showing, for example, that the MSCI Philippines index of equities shows a 14.5 per cent gain year-to-date; MSCI China is actually down by 0.3 per cent; MSCI Taiwan is up 7.5 per cent, and MSCI Thailand up just by 2.6 per cent.